Money Talks: Media, Markets, Crisis

Introduction

Financial speculations: Contested constructions of markets and crisis

Graham Murdock

The commercial world is very frequently put into confusion by the bankruptcy of merchants, that assumed the splendour of wealth only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while with tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them.

Dr Samuel Johnson 1752 (quoted in Atwood 2012: 9)

I’m forever blowing bubbles, pretty bubbles in the air. They fly so high, nearly reach the sky. Then like my dreams, they fade and die.

(Chorus of a popular song first released in 1918)

Recent years have seen talk about the centrality of money and finance move to the centre of public and private life. Discourses around debt and credit, consumption and austerity, increasingly pervade discussion, from debates on the politics of national accounting to anxieties over personal living standards. This resurgence of interest has been prompted in large part by the financial crisis of 2007–2008 and the continuing attempts of governments across the advanced capitalist world to manage its consequences. It is against this background of crisis and response that the contributions to this volume address the ways that economic and financial affairs have been talked about and represented across a range of social sites and media genres.

As the French political economist Thomas Piketty has argued, journalists, commentators and citizens need to ‘take a serious interest in money’ since ‘those who have a lot of it never fail to defend their interests’ (Piketty 2014: 577). The response to crisis throws into sharp relief both the limits of the information and interpretive frameworks offered to the public and the resilience of the narratives generated by those benefitting most from the restoration of business as usual.

The discussions presented here, originated in a series of seminars on the contemporary public sphere, organized as part of the ‘Changing Media, Changing Europe’ programme funded by the European Science Foundation, pays particular attention to Europe. But since the crisis originated in the United States, involved financial institutions with global reach, and has been explored in feature films and documentaries with international distribution, consideration of talk about its causes and consequences inevitably escapes national and regional boundaries.

To understand constructions of the current crisis and reactions to it, we need to return to an earlier moment of crisis, in the 1970s. The policy and ideological responses that crystalized then laid the essential foundations for the crash of 2007–2008 and its continuing aftermath, setting in motion both the dynamics that would create it and the prevailing discourses though which it would be represented and understood.

Gathering storms

As Wolfgang Streeck has noted, it is now generally accepted that ‘[t]he late 1960s and early 70s’ marked ‘a watershed in the history of post-war democratic capitalism’ (Streeck 2012: 28). Consumer demand for the mass-produced standardized goods that had fuelled the long boom was stagnating. The competitiveness of the core capitalist economies was increasingly challenged by emerging economic powers, led by Japan. Profits were further squeezed in 1973–1974 by a four-fold hike in the price of oil. Corporations moved to tackle their increasing costs. Unemployment increased. Retail prices rose, and by 1974 inflation in the world’s largest economy, the United States, had reached 10%, over triple the 3% rate for 1966.

This 1970s’ crisis of accumulation precipitated a radical break with the post-war intellectual consensus on the nature of advanced capitalism and how best to manage it. The styles of state management, public investment and regulation associated with Maynard Keynes were increasingly replaced by market-oriented views. The new thinking was underpinned by three assumptions:

First, the expanding services sector of the economy was seen as displacing manufacturing as the principle engine of recovery and competitiveness in the advanced capitalist economies. Routine assembly jobs were moved ‘offshore’ to low-wage economies. The key industries of the future would be those that traded in information, cultural goods, communication and intangible assets. The financial services provided by banking, investment and insurance rapidly emerged as pivotal to visions of this new ‘weightless’ economy and were enthusiastically promoted in dominant rhetorics. Within the financial sector this fostered both a sense of separation from the declining industries of the ‘real’ economy and an assumption that future economic growth required new, innovative financial products.

Second, within both government and the financial industries, the rapidly increasingly processing power offered by advanced computing, and the mathematical modelling of markets it facilitated, came to be seen as the solution to the problems posed by managing a more complex financial environment. As one leading enthusiast of modelling has noted, ‘When computers first made economic modelling feasible, the mystique of the machine raised expectations that models built with it would prove as infallible as the machine’s arithmetic’ (Clopper 2012: vi). This belief was buoyed up by the successful manned moon landing in 1969. But economic modelling was not rocket science. Its utility depended on the assumptions about human behaviour that underpinned it.

The dominant models factored out any consideration of the vicious circle of debt-financed investment that Dr Johnson had warned against in the quotation that heads this Introduction. ‘He was talking about merchants, but substitute banks and large corporations, and it’s much the same story’ (Atwood 2012: 9). The financial industry and mainstream economics failed dismally to predict either the coming collapse of the ‘tumultuary magnificence of boundless traffic’ in new financial products or its dire consequences for public services and ordinary people’s living standards. Their assumptions were based firmly on the belief that market behaviour was governed by rational calculation in the pursuit of personal advantage. They took little or no account of collective enthusiasms and panics. As David Freedman has argued, ‘It was the supposed strength of risk models that gave investment firms the confidence to leverage their bets with massive sums of borrowed money’ adding that ‘in no area of human activity [was] so much faith placed in such flimsy science’ (Freedman 2011: 76). It was a delusion shared by both those working in the finance industries and those responsible for overseeing their operations. As Alan Greenspan, Chair of the US Federal Reserve from 1987 to 2006, later admitted, it led him to preside over a crash that he ‘never saw coming’ (Greenspan 2013: 90). Attributing a central role to the failures of computer systems, however, all too easily allows the core economic actors in the crisis to evade responsibility and ignores the key role played by neo-liberal ideology in shaping their actions.

By undermining the credibility of the dominant post-war style of political economic management based on extensive regulation of corporate activity and, in Europe, public ownership and operation of key infrastructural sectors, the crisis of the 1970s opened the way for a ‘solution’ based on privatizing state assets and relaxing regulatory oversight. The financial services sector was a major beneficiary of this new market-friendly turn.

In 1933, in the wake of the 1929 Wall Street stock market crash, the US government had passed the Glass-Steagal Act separating retail banking from investment banking. This regulatory wall was designed to protect the routine, but essential, business of accepting deposits and making loans to domestic and business customers from the risk of losses incurred in speculative investment ventures. In 1999, the Financial Services Modernisation Act removed it. The inclusion of ‘Modernisation’ in the title is telling. Only a deregulated market in which financial companies had maximum freedom of movement was seen as fit for the purpose of generating growth at hoped-for levels. In many ways, however, the act was an exercise in running to catch up and ensure that Wall Street was able to compete effectively with the City of London that had been extensively deregulated over a decade earlier, in 1986, in a cluster of measures known as the ‘Big Bang’, one of the cornerstones of the Thatcher Government’s market-driven agenda. This more open playing field offered new opportunities to the investment vehicles operated by Hedge Funds and Private Equity Funds, which because they were closed to regular investors and only open to carefully selected institutions and high-wealth individuals, were subject to even less regulation than established players.

The rebalancing of Anglo-American capitalism, from manufacturing to services, and from extensive to minimal state intervention, was one response to the 1970s crisis. The other was a major push to expand consumption by moving from mass to segmented markets in which carefully engineered symbolic differences between brands were promoted as primary vehicles of self-expression and the assertion of social distinction. The turnover of styles accelerated. Objects became obsolescent and ‘unfashionable’ more rapidly inviting continuous replacement and updating. As corporations sought to rebalance the redistribution of profits in favour of shareholders and executives, however, real wages began their long relative decline. Consequently, expanded personal consumption had to be funded by a substantial extension of personal credit. Credit cards and store cards proliferated, and loans were extended to increasing numbers of those on low incomes, who might never be in a position to pay back the money borrowed. This was a dynamic that culminated in the growth of the sub-prime mortgages in the United States that were instrumental in precipitating the financial crisis of 2007–2008.

The renewed ethos of possessive individualism that informed the new climate of financial dealing and credit-fuelled consumption was memorably encapsulated in Mrs Thatcher’s two most-quoted sayings, that ‘there is no alternative’, to market-driven growth, and ‘there is no society, only individuals and their families’. She was reflecting a growing consensus. As Patricia Greenfield’s (2013) analysis of the frequency with which particular words occur in English-language books printed in the United States demonstrates, whereas mentions of ‘get’ increased sharply from the mid 1960s onwards, mentions of ‘give’ declined. This shift to possessiveness and self-enclosure is supported by Jean Twenge and her colleagues. Using the same database as Greenfield, the Google Books Ngram viewer, they found mentions of the personal pronouns ‘I’ and ‘me’ increasing by 42% between 1960 and 2008 and mentions of the collective pronouns ‘we’ and ‘us’ dropping by 10% (Twenge, Campbell and Gentile 2012). These figures signal an imaginative shift in which making individual choices in the market with a view to maximizing personal advantage eclipses shared responsibility for the quality of collective life. The persona of the consumer elbows out the identity of citizen.

In the wake of the 2007–2008 crisis people are once again being exhorted to contribute to generating economic recovery by restoring and extending their commitment to consumption. At the same time, in the United States, the United Kingdom, and across Continental Europe, they are also being asked to accept swingeing cuts to welfare provision as the necessary cost of addressing the deficit in the public account, a shortfall largely created by the massive transfers of public money needed to shore up the financial system and bail out failing banks. In the dominant narrative, economic ‘recovery’ is identified with the return of consumer-fuelled growth and ‘business as usual’, including the business of operating financial services with only the minimum of regulatory oversight.

This discourse transfers the social costs of pursuing this strategy to those whose living standards and life chances have been most severely damaged by the continuing economic crisis. As a consequence, the corridors of economic decision-making are haunted by demonized ‘others’; the unemployed who fail to devote enough time to looking for work that may not exist; the welfare recipients who submit false claims; the citizens of Spain, Portugal and Greece who have enjoyed the indolent lifestyle of the South and now expect to be bailed out by the hardworking citizens of Northern Europe.

Ranged against this construction of events is a counter narrative encapsulated in the Occupy Movement slogan ‘We are the 99%’, which lays the blame for crisis firmly at the door of the irresponsible and sometimes criminal actions of the bankers, the governments who gave them unprecedented freedom of action and the mainstream economists who furnished them with intellectual rationales and justifications. In place of calls for austerity and the restoration of business as usual, it advocates a variable basket of measures. These include; redressing the growing income and wealth gap by raising more taxes from corporations and the rich and closing the loopholes that allow then to evade payment; renationalizing key resources; reintroducing tougher regulation of corporate behaviour; and more, generally, privileging social justice and ecological sustainability over economic growth as the measure of economic success.

The analysis of this contested discursive field offered in the chapters that follow is divided into four sections, each dealing with a particular discursive space.

‘Insider talk’ explores the ways money is imagined and discussed by traders and dealers working inside major financial institutions and by politicians who promoted the policies that constructed the business environment within which they operated.

‘News talk’ looks at how the preoccupations and world views of financial and political insiders are repackaged as news and comment for consumption by a range of audiences, differentiated by their varying relations to the economic system (as investors, workers and taxpayers) and their media preferences, and explores the spaces available for counter conceptions.

‘Screen talk’ analyses representations of money and finance in two major media forms, documentary and feature films, both of which potentially release investigation, representation and storytelling from the formal and time constraints of news and allow for more flexible engagements with contexts, causes, motivations, blame and responsibility.

‘Everyday talk’ draws on the findings of a major survey across six European countries to explore the different ways the causes of the continuing crisis in the Eurozone and its possible solutions are understood by citizens in different economic and life situations.

Insider talk

Sherman McCoy, the bond dealer, in Tom Wolfe’s iconic 1987 novel of Wall Street, Bonfire of the Vanities, imagines himself and his colleagues as ‘Masters of the Universe’, a group apart, with an unshakeable sense of entitlement.

Among the fund managers and other financial professionals based in the City of London interviewed by Aeron Davis for the opening chapter of this collection, this sense of ‘cultural cohesion and outsider exclusion’ is cemented by intersecting circuits of insider talk. The continual buzz of conversation and gossip that flows between trading rooms and favoured bars, eateries and social venues reinforces a powerful sense of being members of a thoroughly contemporary elite, occupying its own distinctive spaces and networks and operating according to its own rules on the basis of privileged information and analysis. As Peter Thompson confirms, from his interviews with traders working in the foreign exchange (forex) market in New Zealand, this ‘insider’ identity is not confined to the core centres of financial power. It extends to every node in the global digital dealing networks. As markets close in one time zone, others open in other zones, generating an unbroken chain of potential transactions encouraging participants to see themselves as runners in a never-ending relay race, handing the baton to colleagues on the next continent working for the same transnational clients and trading in the same assets. This global playing field operates on increasingly compressed time scales. Profits depend on instantaneous responses to fractional movements in prices. Unlike shares, there are no centralized exchanges for currencies; so prices cannot be tracked on a continuous basis as shifts in dealing show up on trading screens. This real-time monitoring is replaced by benchmark prices based on the flow of dealing complied by WM/Reuters that are then posted for 30 seconds either side of the hour prompting frenetic trading before this ‘window’ of opportunity closes.

The general acceleration of dealing is taken to its logical conclusion by the high-frequency traders, the ‘Flash Boys’ (Lewis 2014), who pay $14 million a year for access to a private cable link between New York and Chicago that cuts the time taken to send a signal from 17 milliseconds to 13. This keeps them one step ahead of investors relying on publicly accessible infrastructure so that when these ‘late’ entrants place an order to buy or sell, they find the market price moving against them. As the Economist tartly observed, ‘[P]erhaps the best analogy is with the people who offer you tasty titbits as you enter the supermarket to entice you to buy; [and] as soon as you show appreciation for the goods, they race through the aisles to mark up the price before you can get your trolley to the chosen counter’ (Economist 2014: 77).

This is a particularly stark illustration of a longer-term tendency towards short-termism that observers now see as characteristic of the financial industry as a whole. As one insider noted, fund managers are judged by the immediate returns they generate for clients: ‘the current quarter is what matters, perhaps the next quarter, certainly not next year’s equivalent quarter’ (Golding 2003: 181). As Aeron Davis points out, this emphasis fuels a continual search for the ‘next big thing’, which ‘can aid the creation of bubbles and crashes’ with their ‘wider social and economic consequences’. As Alan Greenspan famously put it, with studied understatement, in a speech to the American Enterprise Institute, during the dot-com bubble of the late 1990s when the price of shares in Internet-based companies were talked up with no real basis, ‘irrational exuberance has unduly escalated asset values’ (Greenspan: 1996). As the opening quotation from Dr Johnson demonstrates, recognizing irrational tendencies in markets has a long history.

In 1841 the Scottish journalist Charles MacKay published his anatomy of collective behaviour, Extraordinary Popular Delusions and the Madness of Crowds (MacKay 2000). It was an immediate bestseller. Alongside accounts of witch hunts and religious crusades, he offered detailed analyses of three major financial speculations; the tulip bulb mania of the early seventeenth century, and the successive bubbles surrounding the South Sea Company and the Mississippi Company in the decade between 1710 and 1720. The style verged on the sensational with the frenetic nature of trading dramatized with carefully calculated anecdotes, including the story of the Parisian hunchback who reputedly rented out his hump to eager speculators looking for a handy and moveable writing desk. For investors caught up in the turbulent expansion of industrial capitalism and searching for a safe haven for their money, MacKay’s inventory of ‘delusions’ offered a sober reminder of the tendency for financial speculation to become divorced from the ‘real’ economy of production. By the end of the century, however, the newly professionalized discipline of ‘economics’ was pushing to be recognized as the only source of reliable analysis and commentary on economic affairs. It presented itself as a new science of economic behaviour rooted in the assumption that the ‘economy’ was governed by rational calculation and open to precise predictions that could be codified in mathematical formulae, the universal language of ‘true’ sciences. There was no place in this model for Mackay’s insights. As Greenspan has been forced to concede however, the belated rediscovery of ‘herd behaviour’ in financial markets that the 2007–2008 crisis has prompted has comprehensively undermined this ‘model of the wholly rational Homo economicus used for so long’ as the basis of neoclassical economics (Greenspan 2013: 92).

Recent events, however, have also revealed more calculated forms of collusion at the heart of the financial system with mounting evidence that institutions have systematically intervened in markets to establish a mutually advantageous operating environment. In December 2013, six financial institutions agreed to pay the European Commission 1.7 billion euros for participating in a cartel that rigged the LIBOR, the benchmark interest rate at which banks lend to each other. They included the major French and German banks, Société Générale and Deutsche Bank and the Royal Bank of Scotland (Economist 2013: 83). As the European Competition Commissioner, Joaquin Almunia noted, ‘What is shocking … is not only the manipulation of benchmarks … but the collusion between banks that are supposed to be competing with each other’ (quoted in Treanor 2013: 3). At the time of writing, investigators are pursuing claims that the key 4pm forex benchmark price posted in London has also been systematically manipulated. They are paying particular attention to the electronic chat rooms used by leading traders in the market. With names like ‘The Bandits Club’, ‘The Cartel’ and ‘The Dream Team’, they reaffirm and celebrate a strong sense of being a group apart that writes its own rules. Gordon Brown, who as chancellor of the exchequer throughout the New Labour administrations headed by Tony Blair in Britain had charge of steering the British economy, has candidly admitted that he, along with other leading politicians and regulators, failed to fully grasp the extent to which the financial sector had become a self-enclosed interconnected system increasingly uncoupled from national priorities. ‘We didn’t understand the entanglements of different institutions and we didn’t understand … how global things were. That was our mistake’ (BBC 2011).

As Catherine Walsh demonstrates in Chapter 3, analysing the budget speeches of successive British chancellors, throughout his time in office Brown did nothing to challenge the prevailing orthodoxy that financial services in general, and the City of London in particular, were pivotal to Britain’s economic vitality and needed to be nurtured and protected from unnecessary regulation. This was in marked contrast to his Labour predecessor Denis Healey, who as chancellor in the late 1970s had seen industry as the primary driving force behind the economy and argued that any expansion in the business of banks should be ‘directed to the needs of manufacturing for working capital’. The election of the first Thatcher government in 1979 saw this orthodoxy dismantled. As Walsh shows, finance quickly replaced industry as the central focus of budget statements, and a raft of measures were introduced to promote ‘finance-friendly regulation, finance-friendly tax policy, and an emphasis on the City of London’s power to create wealth’. As Dylan Grice has shown (again using the Google Ngram viewer database of word usage), this change of direction was a localized variant of a much more pervasive imaginative and rhetorical shift in the English-speaking world that saw the term ‘financial’ overtake ‘industrial’ from 1980 onwards, and the gap between the two widen in each successive year (Grice 2013: 4). In Britain the ascendancy of finance was anchored by two very concrete policy interventions, the 1986 ‘Big Bang’ deregulation of financial services mentioned earlier, and increasing popular involvement in financial markets. The first gave financial institutions much more freedom of movement, the second tied increasing numbers of individuals and households into the emerging network of services through the flotation of shares in the newly privatized public utilities, the sale of council houses, and the promotion of private pensions. Financial gains became democratized. They no longer appeared as the exclusive preserve of the privileged. They became central to personal and household calculations of gains and futures. The new Labour government elected in 1997 did little to reverse these trends and embarked on their own romance with finance. As Walsh shows, from 1980, right up until the crisis of 2007, the message that successive chancellors of both major parties ‘sent to financial elites and non-elites alike was unswervingly supportive’.

News talk

Although the financial crisis of 2007–2008 prompted a degree of political soul searching, with calls for a more socially responsible capitalism, the dominant impetus was to get back to ‘business as usual’ as quickly as possible with only minimal re-regulation of financial services or adjustments to the tax system to increase the contributions made by corporations and the most wealthy. The burden of restoration fell mainly on the public purse. In Britain, failing banks were bailed out with huge infusions of public money, and across Europe, deficits in public finances were addressed by imposing swingeing cuts in expenditure on welfare benefits and public facilities. As Justin Lewis and Richard Thomas argue in their chapter, these interventions were underpinned by a continuing political commitment to restoring the consumer-driven model of economic growth that had been instrumental in causing the crisis. This model has been under sustained attack for some time from critics pointing to its environmental limits and socially dysfunctional consequences. However, their analysis of press reporting of talk around growth in the leading ‘quality’ newspapers in Britain and the United States between September 2010 and July 2011 reveals that only 12 of the 591 items sampled mentioned the negative consequence and only three focused on them in detail. At the same time, very few of the items offered tangible reasons for continuing to pursue a growth model. When they did, they tended to emphasize job creation while largely ignoring alternative ways of tackling unemployment.

This analysis, conducted over two years after the advent of the 2007–2008 banking crisis, suggests that despite mounting evidence of its escalating costs to low-income households and public provision, in the two major centres of the new financial capitalism, a return to consumer-generated growth remains the taken for granted measure of successful political management.

As Lewis and Thomas point out, the rapid rise of business news constructed around corporate and consumer talk has played a major role in sustaining and cementing this orthodoxy. The expansion of multichannel television has opened space for niche business news channel such as Bloomberg and CNBC while escalating problems with the established economic models of newspaper financing have seen the number of public relations specialists overtake the number of journalists, a trend particularly evident in the United States (see McChesney and Nichols 2011: 49). With resources stretched, newsrooms are more inclined to rely on PR copy and less able to mount independent investigations.

As George DeMartino underlines, drawing on interviews with journalists working in the United States in the period leading up to the crisis, the thinning out of in-house resources left them more dependent on outside sources for commentary and analysis. Added to this, they tended to privilege economists working in the financial sector, assuming they were the best informed, and when dealing with supposedly ‘independent’ academics, not to probe too deeply into their ties and contracts with financial institutions and the possible conflicts of interest these might generate. As one of his interviewees conceded, with the benefit of hindsight, ‘we [now]